C .S.P.SINGH,J. - (1.) The Income -tax Appellate Tribunal, Allahabad Bench Allahabad, has under section 27(1) of the Wealth Tax Act, referred the following question for our opinion : - 'Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the right to receive the Malikana allowance of Rs. 30,612 -8 Annas in the case of the joint family in respect of 1957 -58 and 1958 -59 assessment years and 1/4th thereof in the hands of each of the four members of the Joint Hindu family in respect of 1964 -65 assessment years onwards, was exempt under section 2(e)(iv) of the Wealth -tax Act, 1957 ?'
(2.) FOR the assessment years 1957 -58 and 1958 -59, the reference relate to Kr. T. N. Singh Hindu undivided family while those pertaining to years 1964 -65, 1965 -66, 1966 -67, 1967 -68, 1968 -69 and 1969 -70, relate to Kr. T. N. Singh as an individual. The case of Smt. Shanti Devi, individual, wife of Kr. T. N. Singh, for the assessment years 1966 -67, 1967 -68 and 1968 -69, is also covered by the aforesaid references. The question referred also pertains to the assessment of V. N. Singh, and Ajai Narain Singh, sons of Kr. T. N. Singh, pertaining to the assessment years 1966 -67 to 1971 -72, as regards the first of the aforesaid assessees and the years 1966 -67, 1967 -68 and 1968 -69, the second of the aforesaid assessees. The valuation dates for the Hindu undivided family for the two assessment years 1957 -58 and 1958 -59 are 31st August, 1956 and 31st August, 1957 and in the case of other assessees the 31st March of the preceding year. Although the assessees are different, the Tribunal referred a single question which arose out of its consolidated order dated 18th March, 1972, passed in W.T.A. Nos. 76 to 81 and 4 to 14 and 94 and 95 of 1971 -72, inasmuch as the question of law involved was similar. The original assessment for the year 1957 -58 was made on the Hindu undivided family of Kr. T. N. Singh on a net wealth of Rs. 4,15,780/ -. Subsequently, it came to the notice of the Wealth Tax Officer that the capitalised value of Malikana allowance of Rs. 30,612/8 annas had escaped assessment. The Wealth Tax Officer reopened the assessment under section 17 of the Act. The assessee filed returns under section 17 showing net wealth of Rs. 4,15,780, and it was contended that the Malikana allowance was an annuity and not being commutable was exempt under section 2(e)(iv) of the Act. This contention of the assessee was rejected, and the capitalized value of Malikana allowance was included in the net wealth of the assessee and valued at Rs. 6,12,256/ -. On the 16th May 1958, a partial partition took place in the joint family of Kr. T. N. Singh with effect from 22nd February, 1958. This was effected by an arbitration awarded and the Malikana allowance of Rs. 36,330/ - was also partitioned among Kr. T. N. Singh, his wife Smt. Shanti Devi, and his two minor sons. The Wealth Tax Officer estimated the capitalised value of the Malikana allowance and included an amount of Rs. two lacs in the net wealth of each of the four assessees for the year 1959 -60 onwards. The appeals, which were filed before the Appellate Assistant Commissioner against the assessment orders, were dismissed. But the appellate Assistant Commissioner reduced the quantum of the capitalized value, and directed that only one and half lacs should be included in the hands of each of the four assessees after the partial partition on 22nd February, 1958. As respect the appeal of Hindu undivided family for the year 1957 -58 and 1258 -59, the capitalized value of the Malikana allowance taken by the Wealth Tax Officer was upheld, and the appeal dismissed. Thereafter, appeals were filed by the Hindu undivided family and the various individual before the Tribunal. It was contended before the Tribunal that the Malikana allowance which the assessees were getting was a pension, and hence exempt under section 2(e)(iv) of the Act. In the alternative, it was contended that the Malikana allowance was an annuity in perpetuity and capable of being commuted and, as such, was exempt under section 2(e)(iv) of the Act. The Tribunal rejected the assessees contention that the sum of Rs. 30,612/8 annas was a pension, but upheld the contention that it was in the nature of annuity and was not capable of being commuted and, as such, was exempted under section 2(e)(iv) of the Act. In view of this conclusion, the Tribunal ordered that the capitalised value of the Malikana allowance be deleted from the net wealth of the assessees. In order to determine as to whether the amount in question is an annuity, as is contemplated by section 2(e) of the Act, it is necessary to see the genesis of the grant. Fortunately, the facts relating to the grant are set out in two of the assessees own cases reported in : [1962]3SCR213 Government of the State of Uttar Pradesh and others vs. Kunwar Shri Trivikram Narain Singh and : [1965]57ITR29(SC) Commissioner of Income -tax, U.P. vs. Kunwar Trivikram Narain Singh. In : [1962]3SCR213 , the Supreme Court, while dealing with the genesis of grant, put up the matter thus : - 'Under a treaty between the East India Company and Nawab Asafuddaula, the Province of Banaras was ceded about the year 1175 to the East India Company. The company then granted a sanad to Raja Chet Singh the former ruler of Banaras, and under that sanad, the rights and powers previously held by Raja Chet Singh were conferred afresh. Raja Chet Singh granted in Jagir, pargana 'Syedpore Bhettree' in perpetuity to his Diwan Ousan Singh as remuneration for services rendered to his family. Raja Chet Singh having renounced his gaddi, the East India Company confirmed the grant made by the Raja in favour of Ousan Singh. Raja Chet Singh was succeeded by Raja Mahip Narain Singh who executed a sanad in favour of Ousan Singh affirming the grant. 'Land revenue settlements were made in the Province of Banaras about the year 1789 -90, but the Jagirs including 'Syedpore Bhettree' were excluded from that settlement. Ousan Singh died in or about the year 1800, and his son Sheo Narain Singh succeeded to the Jagir. In the enquiry held by the Collector of Ghazipur into the proprietary right claimed by the Jagirdar under Regulation II of 1819, it was declared that the grant to Ousan Singh was for life only and did not confer a heritable or transferable tenure in the parganas. The decision of the Collector was confirmed by the Commissioner of Bihar and Banaras subject to the recommendation that Sheo Narain Sigh should be maintained in possession of the parganas for life. The Government then directed in 1828 that a detailed settlement be made with the village zamindars, and offered Sheo Narain Singh allowance for life of one -half of the revenue to be assessed on the pargana. Sheo Narain Singh declined to accept the offer and commenced an action in the Civil Court contesting the validity of the order resuming the Jagir. The Government considered the question afresh, and resolved to revise the order of resumption and in July, 1830, ordered that Sheo Narain Singh be considered Tahsildar of pargana 'Syedpore Bhattrees' and that the office be treated an hereditary devolving upon the descendants of the Jagirdar and held so long as the incumbent did not in fringe the privilege found to belong to other classes at the time of formation of settlement. Sheo Narain Singh died before the resolution of the Government was communicated to him and he was succeeded by his son Harnarain Singh who withdrew the suit and signed a compromise incorporating the terms of resolution. On August 19, 1831 the Secretary to the Government addressed to the Agent of the Governor General at Banaras a letter requesting the Secretary to the Governor General in pension department to prepare the necessary documents relating to the grant of a sanad specifying that parganas 'Syedpore Bhettree' were granted on an 'istrar' tenure to Harnarain Singh for his own benefit and of his heirs and successors in perpetuity on condition of their paying to Government 3/4th of the Jama which the revenue officers may in a resettlement of the parganas assess thereon and that all claims to proprietary right to any village situate in the said pargana shall be fully enquired into and in the event of any such claims being established to the satisfaction of the Government the village or villages forming the subject of the claim shall be considered distinct from the independent of the grant and that a settlement shall be made with the proprietor as in other cases that the office of Tahsildar shall belong to Harnarain Singh and be hereditary in his family so long as the condition prescribed for the duties of that office be not infringed, and that in virtue of such office, the separate proprietors shall continue to pay the Jama which may be assessed on their villages through Harnarain or such other member of the family as the Government may appoint provided that 1/4th of the Jama of such separated villages shall be deducted from the payment to be made to the Government in lieu of all remuneration for discharging the duties of Tahsildar, and provided further that until the settlement shall be completed, Harnarain Singh shall continue to pay Jama to Government. This proposal calling upon Harnarain Singh to bear all the expenses of the administration and any loss in collection which may occur, departed from the terms of the compromise. Harnarain Singh refused to accept the offer of a sanad so the terms set out in that letter and also the office of Tahsildar. In the meanwhile proceedings for settlement were commenced on November 16, 1832, settlement officer reported on the conclusion of a summary settlement of the parganas that in 166 mahals, the village zamindars established proprietary rights and the revenue assessed upon them was Rs. 1,28,980/ -. He further reported that 12 mahals of which the gross revenue was Rs. 22,840/ - were settled with the Jagirdar at reduced revenue of Rs. 17,130/ -. 'Harnarain Singh having refused to undertake the office of Tahsildar on the terms offered by the Government, the Board of Revenue suggested that Harnarain Singh should receive 1/4th of the net collections after deducting from the gross collections the costs of Tahsil establishment thereby giving him an income of Rs. 36,3220 -8 -0. The Board of Revenue recommended that a sanad be issued under the authority of the Lt. Governor conferring the pension of Rs. 36,322 -8 -0 on Babu Harnarain Singh and his heirs in perpetuity.' In a letter dated September 13, 1837, it was recorded that the Lt. Governor of N.W.F. Province was of the view that it would be more conformable with the terms of agreement if the allowance on Harnarain Singhs villages (12 mahals) were given in the form of a remission of revenue to the amount of one fourth, the Jama being fixed at Rs. 17,130/ - instead of Rs. 22,940/ - and for the villages settled with the zamindars (166 mahals), Harnarain Singh be paid annually a person of 1/4th of the collections after deducting the Tahsildari charge, and on that footing Rs. 30,612 -8 -0 be granted to Harnarain Singh. By letter dated October 19, 1837 from the Secretary to the Lt. Governor N.W.F. Province, the Secretary to the Board of Revenue was informed that the Lt. Governor had resolved to adopt the Boards recommendation made on their letter dated Sept. 26, 1837 after deducting the expenses of Tahsildari establishment i.e. Rs. 30,612.8 -0 out of a net Jama of the villages amounting to Rs. 1,28,960. About the 12 mahals settled with Harnarain Singh, the allowance was directed to be made in the form of a remision of 1/4th of revenue assessed. Finally, in the letter dated Sept. 14, 1836, from the Secretary to the Sardar Board of revenue to the officiating Commissioner 5th Division Banaras it was stated that what the Government intended was to give a clear fourth of the net revenue of the parganas to the Muqurrurreedar as pension. The letter further stated : - (2) 'The arrangement of paying a portion of that pension by a commission of revenue on certain mauzas settled, as was supposed, directly with the muqurrurreedar was proposed by the Board and allowed by Government as a mere matter of convenience to the parties. Neither the Government nor Board intended to alienate any part of the muqurrurreedars pension to his son or to any other person. (3) If the mauzas supposed to have been settled with the muqurrurreedar for his own use and behalf, turn out to be held by another person on a distinct interest, it will be necessary for the Board to modify the arrangement previously allowed and to collect the whole assessed revenue of those mauzas as of all other, and when the same shall have been collected to pay the Muqurrurreedar his clear fourth of the net collections. (4) As however, these mauzas were settled by the Government with the Muqurrurreedar his responsibility for the Jama of any portion of revenue which may fall in arrear by person or the arrangement made by him or of the domestic difference of his family, must be made good from his pension before the assignment of the fourth share of the net collections can have effect. (5) The Board must consider the Muqurrurreedar as the owner of these villages during his life. With his family arrangements they have no concern. But if it will be his wish that the whole revenue be collected from these villages and one -fourth be returned to him from the treasury instead of receiving that fourth in the shape of a remission he is at liberty to make the election. (6) He is also, the Board remark, of course at liberty to cause those mauzas to be transferred or sold in the case of arrear, but his responsibility for the assessed Jama as fixed by the act of settlement will remain the same.' It is manifest that the recommendations made by the Board of Revenue and the Secretary to the Government in the lengthy correspondence varied from time to time, but in the final letter, it appears to have been made clear that an amount equivalent to 1/4th of the net revenue of the 166 mahals be given as pension annually to the Jagirdar. A formal Sanad, though contemplated, was it appears never issued, but it is common ground that the allowance was paid through the Treasury office of the Collector of Ghazipur year after year since the year 1833 to Harnarain Singh and his descendants. This allowance to the Jagirdar of 'Syedpore Bhittree' share in the revenue of the entire pargana.'
(3.) AFTER setting out these facts, the Supreme Court went to hold that out of the total amount of Rs. 36,322/ - which the assessees ancestors were receiving the sum of Rs. 30,612/ - was an allowance to Harnarain Singh in respect of 166 mahals and, as such, could not be taken over by the State Government. It also held that the mere fact that it represented 1/4th share of the net revenue of 166 mahals of the estate did not create any right in the assessee to the estate, which had vested in the State of U.P. The fixation of the amount of the allowance a portion of the land revenue was only for the purpose of using the land revenue for the 166 mahals, as a measure for fixation of the annual amount to be paid to the ancestors of the assessee and to the assessee himself.;